Loans to Mobsters, Ties to BP? Kirk’s Attack Ads Go Too Far

Posted on
July 9, 2010

Republican Rep. Mark Kirk is attacking his Democratic opponent in the Illinois race for the U.S. Senate with two ads that go beyond what the facts support. The ads make unsupported claims about the role Giannoulias played at his family’s troubled bank and strain to tie him to BP, among other dubious statements.

According to one of the ads, "Risky," Giannoulias "made tens of millions in risky loans to convicted mobsters." Photos of three men flash onscreen: Michael "Jaws" Giorango, John D’Arco Jr. and Boris "Half Dollar" Stratievsky.

There’s no question that Broadway Bank, which was founded by Giannoulias’ father and employed other members of the family including (for a time) Alexi himself, made loans to some troubling characters. But Alexi Giannoulias denies that he was personally responsible for making loans to the one person who actually could be described as a "convicted mobster" at the time he borrowed money. We asked the Kirk campaign for any evidence it had to the contrary, but staffers there provided only quotes from media reports indicating that Giannoulias had a senior position at the bank and that he has on occasion defended at least one of the loans.

To explain: An investigation by the Chicago Tribune showed that the Giannoulias family’s Broadway Bank loaned Michael "Jaws" Giorango and another Chicago crime figure, Demitri Stavropoulos, about $20 million while Giannoulias was a senior loan officer. Stavropoulos at the time was waiting to begin serving a prison term for running a multistate bookmaking operation, while Giorango was soon to be confined in connection with his conviction for promoting a nationwide prostitution ring. Criminals, without a doubt.

But Giannoulias told the Tribune in a statement that he "was not a member of the loan committee that approved the financing for Giorango," who received the money through a company he had formed with Stavropoulos. Giannoulias’ older brother Demetris, the bank’s president and CEO at the time of the paper’s April 2010 story, said that Alexi’s role was mostly clerical: "getting the appraisals ordered, getting the loan documents prepared, coordinating with attorneys, getting commitment letters prepared. All that kind of stuff." Demetris also said that Giorango had borrowed money from the bank on multiple previous occasions and the loans were "performing," and said that the bank hadn’t been aware of Giorango’s convictions. Broadway later sued to foreclose on some of the properties financed by the loans.

The Tribune notes that "Public records do not show which bank officials negotiated or approved any of the loans." Alexi Giannoulias has said little about the matter other than the statement we quote above. He has admitted to going to Miami to meet Giorango and inspect some of his ventures as part of performing due diligence on the loans, something he didn’t mention when reports of the Giorango loans first surfaced.

As for D’Arco, another of the men pictured in the ad, he was convicted in the 1990s of taking a bribe to introduce a bill when he was he was in the state legislature and of trying to fix a court case. He was tied to a Giorango company that received financing from Broadway in 2001. But he wasn’t an owner, and his name didn’t appear on any loan documents. Furthermore, Alexi Giannoulias has noted that he was in college at the time of that loan (he may actually have been in law school).

The third man shown, Boris Stratievsky, had "not even a misdemeanor" charge against him when he and his father received $20 million in loans from Broadway Bank, as Giannoulias has said. He was later indicted on money laundering and other charges.

Regulators shut Broadway down on April 23, 2010, with MB Financial Bank, National Association stepping in and acquiring all of the deposits and assets, and sharing in the losses with the feds. The loss to the Federal Deposit Insurance Corporation was estimated at $394.3 million.

Upshot? Kirk’s ad goes too far in saying that Giannoulias "made" loans to "convicted mobsters." There’s no proof that he "made" the loans to Giorango, the only one of the three men pictured who had been convicted at the time he borrowed money from Broadway. Another of the men didn’t get a loan from Broadway at all. And the third man wasn’t charged with a crime until after Giannoulias had signed off on loans to him. To be accurate, Kirk should have said only that his opponent worked at a family bank that made loans to criminals and their business ventures, and that he had a role in servicing some of the loans.

The College Cash Caper?

The ad’s next charge is that as state treasurer, Giannoulias "made risky investments that cost families $73 million in lost college savings." And it’s true that Giannoulias, as treasurer, oversees the Illinois Bright Start 529 college savings plan, and that one of the funds in the plan lost about $150 million, mostly in 2008. But Kirk is taking it too far in blaming Giannoulias for the fiasco.

Here’s what happened: the Bright Start 529 plan is managed by OppenheimerFunds, as are those of several other states. Oppenheimer put some of the money that individuals had invested in the 529s into its own Core Bond fund. Bond funds are normally prudent and relatively safe investments. But in this case, things went wrong. Here’s how Morningstar, the investment research firm, explained it:

Morningstar, April 23 2009: Oppenheimer Core Bond….a fixture in [the] Oppenheimer-managed 529s, lost more than 35% in 2008 due to management’s bets on nonagency mortgages. In particular, management gained exposure to the battered commercial mortgage-backed securities market through derivatives that had a leveraging effect on the fund, amplifying losses…OppenheimerFunds is the poster child for how badly some 529 players went awry in 2008.

Core Bond was just one of 21 funds that Bright Start owned, so most of the money in the 529 was not affected. Of the approximately $150 million of investors’ money that was lost in the Core fund, Giannoulias reached a settlement with Oppenheimer to recover $77 million. But is it the Democratic candidate’s fault that the fund went south? Even Kirk didn’t think so – at least, not last year. He blamed Oppenheimer. (At first he faulted "a state bureaucrat that has a bad record," then later clarified to say he meant the Oppenheimer employee who ran the Core Plus fund, not a state worker.) Kirk didn’t mention Giannoulias at the time. Incidentally, Morningstar, which had named Illinois’ Bright Start one of the top 529 plans in the country a year earlier, said in 2009 that it "still holds plenty of appeal" as a college savings vehicle.

Where Do They Stand?

Kirk’s ad "Stand," which began airing on June 30, attempts to capitalize on public anger over the oil spill in the Gulf of Mexico. The ad characterizes Kirk as a BP opponent, while it puts Giannoulias in the oil company’s corner. But the ad strains the facts to make its case.

Stopped BP from Polluting?

The ad says "Kirk won praise for helping stop BP when it tried to pollute Lake Michigan." That’s true enough, but not quite the whole story.

The ad cites a Chicago Sun-Timeseditorial that said Kirk "fought hard to stop BP from dumping more waste into the lake." Kirk was one of several politicians to oppose a water permit BP was awarded in 2007 by the the Indiana Department of Environmental Management that would allow the company to increase the amount of ammonia (54 percent more) and suspended solids (35 percent more) that it dumped daily into Lake Michigan. The permit was requested as a part of the company’s $3.8 billion expansion of its refinery in Whiting, Ind. Both political and public pressure caused BP to reconsider its plan, and pledge that it wouldn’t move forward with plans to dump more pollution into the lake.

But the fact is, the Chicago Tribunereported that BP’s permit was not revoked, and the company’s pledge not to increase its pollution isn’t legally binding:

Chicago Tribune, Aug. 24, 2007: Neither BP nor Indiana officials would commit Thursday to adjusting the permit to legally lower the acceptable amount of ammonia and suspended solids released into the lake. Both the company and the state also said there will be no changes to another provision in the permit that exempts BP from tough limits on mercury pollution until 2012.

Scott Dean, a BP spokesman, said it would be up to the Indiana Department of Environmental Management to alter the permit. But state officials said the company would first have to request the changes.

"The permit as issued is in effect," said Jane Jankowski, a spokeswoman for Indiana Gov. Mitch Daniels. "If the company seeks a modification, it could be subject to change like any other permit."

Giannoulias Aide: A Lobbyist for BP?

The ad claims that "Alexi Giannoulias’ top aide was a longtime BP lobbyist." That’s a reference to Endy Zemenides, an attorney with the law firm Johnston Greene LLC, who also serves as an unpaid adviser to the Giannoulias campaign. But the lobbying he did for BP had nothing to do with oil drilling as the ad may lead viewers to believe.

According to the Chicago Board of Ethics’ archive of registered lobbyists, Zemenides and his former law firm, Acosta, Kruse, Raines & Zemendies LLC, which later became just Acosta, Kruse & Zemenides, were registered lobbyists for the BP Bovis Global Alliance between 2003 and 2008. The Global Allliance was a partnership launched in 1996 between BP and Bovis Lend Lease, a project management and construction company, to build and maintain BP service stations in Europe. In later years, the BP-Bovis project expanded to other countries, including the United States.

According to the Giannoulias campaign, Zemenides "worked on zoning cases for BP-Bovis." That is backed up by Erika L. Kruse, a former partner at the firm with Zemenides, in an e-mail to FactCheck.org. Kruse also explained the Chicago’s Governmental Ethics Ordinance requires attorneys working on zoning matters to register as lobbyists:

Kruse, July 8: Mr. Zemenides provided legal services to BP/Bovis in connection with land use approvals required in the City of Chicago to convert then Amoco gas stations into BP stations. His representation was limited to these land use approvals and involved proceedings required under the City of Chicago’s Zoning Ordinance and covered by the Administrative Law Review Act. Because Mr. Zemenides appeared before the City of Chicago in this capacity, he was required to, and did, comply with the City of Chicago’s Governmental Ethics Ordinance that requires attorneys involved in zoning proceedings to register as "lobbyists."

Higher Energy Taxes, Too?

The ad also claims that "Alexi says higher energy taxes are on the table." That’s likely a reference to Giannoulias’ support of a "market-based system that puts a price on global warming pollution." Republicans have long labeled Democratic proposals to curb greenhouse gas emissions through a cap-and-trade system, where companies would be able to buy and sell allowances to meet an emissions cap, as a "national energy tax." But the ad fails to mention that before Kirk announced that he would run for Senate, and came out against pricing emissions, he was one of just eight Republican members of Congress to vote for the climate and energy bill sponsored by Democratic Reps. Henry Waxman and Edward Markey, that featured a cap-and-trade plan.

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